If not for all the commentary surrounding the historic rise and fall in the VIX, I wouldn’t have known about it.
The volatility index is simply not a part of my daily chart review. It’s not that important to me.
With the launch of our new breakout multiplier service, I’m finding this comes as a surprise to people.
The strategy is basically to get long calls or puts and bet on big directional moves.
What this means is that we will ALWAYS BE LONG VOLATILITY.
Even when the VIX spikes to its highest level in years. We are buyers of volatility and the way I see it, we are simply price-takers.
If vol is high, well maybe there is a good reason for it.
As market technicians, we know the market is not efficient, but we also don’t second guess the way it prices things.
My mentor Brian Shannon taught me that “only price pays.” There is nothing more true in the market.
Imagine a technician looked at a chart of AAPL and thought “no, it is too expensive at this price, I can’t buy it.”
We would never do that! That is technical blasphemy. We think those people are from crazy town. You may know them as value investors.
So following this logic, why then, would I ever look at the price of a call option and think “that is too expensive, I can’t buy it?”
Who am i to tell the market how it should price an asset?
I’m here for the direction and timing. If I nail those two things, nothing else matters.
I have found an edge in leveraging intermarket data and relative strength to pick my spots responsibly, and make money trading the waves.
I am a pattern trader.
I am not a volatility expert.
Options are just vehicles that allow me to take bigger risks and make larger profits.
Everything I know about the greeks I learned auditing derivatives in the big 4 many years ago. I have forgotten a lot of it by now. The greeks really don’t affect me or the options system I trade.
In fact, I often find myself doing the opposite of what a volatility trader would do.
I find myself selling premium in environments where premium is “too cheap” all the time.
But, guess what, if I catch a support level, and it holds… even if the puts I sold were priced lower than usual because of low volatility…
I still get to keep all that money I collected in the case that I am right.
Last week, we were getting long calls even with volatility at its highest level in years.
We bought RKT calls Friday August 2nd and PLTR calls Tuesday August 6th.
On Monday August 5th, the VIX surged to its highest level since the COVID crash.
They tell me that is the worst kind of environment to be long premium in.
For me, it’s one of the best. The market just got wrecked and is due for a big bounce. I’m buying calls all day, even if I have to pay up.
We ended up selling the double in both those calls in 3 days' time.
This is living proof that if we get the direction and timing right, volatility being elevated might impact our risk/reward, but it should never dictate the success or failure of a trade.
In other words, vol is high, so maybe we made 3x on a trade instead of 4x. Oh well. I sleep fine knowing this.
Here’s a link to a podcast Sean and I taped this week discussing how we traded (and didn’t trade) through the recent volatility.
